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Safety Net For Retirement Funds


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Stock markets are off to a historically bad start for the year, and the S&P 500 has officially plunged into correction territory. With weaknesses in the commodity and emerging markets weighing on investors’ minds, it’s possible that stocks could continue to decline, even from today’s depressed prices.

This is a warning to investors to wake up to the idea that rising risks of a recession could send the stock market over a steep cliff.  But it can be hard to fight the urge to do something – anything – in the face of economic uncertainty.  Most investors are in a bearish mood and are unwilling to expose their savings further to traditional stock and bond market investment.

This is when Fixed Indexed Annuity (FIA) comes to prominence as a safer alternative to traditional financial investment.  The FIAs are ideal for people who are nearing retirement. FIAs, in essence, work like a social security or 401k plan. They provide reliable periodic payments all the while guaranteeing the principal amount.

The reason for their popularity lies with the fact that FIAs offer benefits of stocks, bonds, and 401k investment instruments.  Fixed Indexed Annuities have emerged as the most popular financial instrument for investors who are risk averse and want a guaranteed return on their investment.

The increasing demand for low risk investment instruments has fueled popularity of these FIAs. They are ideal for investors to secure their retirement savings and provide a guaranteed lifetime income that prove invaluable during their retirement phase.

FIAs offer very unique features to you, like:

  • A locked-in interest: An FIA’s indexed interest is locked in each and every year by a feature called annual reset and can never be lost due to a market downturn, on the contrary to your other investments. That means, any interest you earn is protected and therefore your principal too.
  • Timing: Whether or not you know exactly when you will retire, you cannot predict how the markets will be performing at that time. For example, many investments had a negative return multiple times over the last ten years. What if your wish to retire was at the end of those negative years? With an FIA, the accumulation value will never be lost due to market ups and downs.
  • Lifetime income: One of the most important features of an annuity that no other retirement planning vehicle can do is to provide a guaranteed lifetime income. An annuity is the only retirement vehicle that will guarantee that you will never be able to outlive your retirement savings.
  • GUARANTEES. Many people live with historically low interest rates to get FDIC protection for their certificates of deposit. When you learn more about the guarantees an annuity can give you, with much higher interest, you may well be more comfortable. See, the issuing company (an insurance company or an annuity company) guarantees your principal. In a deferred fixed index annuity, the company also guarantees the interest you earn.

Is this guarantee worthwhile? There are at least a couple of reasons you can rely on the guarantee of a company that issues an annuity.

First, your State’s Insurance Commissioner regulates the companies that offer annuities. This includes audits and other oversight. They also regulate how annuities are sold to you. The Insurance Commissioners do not want long-term annuities sold to people for whom they are not suitable. Rules help guarantee (or at least influence) that you do not make an unwise purchase in that case.

Second, Insurance Commissioners demand that an issuing company has enough reserves set aside to pay its obligations to you and other annuity and life insurance contract owners. That means if the company goes under in its general finances, your money is set aside and safe.

Third, if a company does go under, the tradition is that other companies come in and buy up the contracts that are still outstanding to contract owners. The benefits get paid one way or the other.So, with all these protections, the contractual guarantee of a life insurance or annuity company is very strong.

FIAs promise protection of principal over the tenure of the investment. The FIAs provide higher returns as the returns are linked to performance of a specified stock market index. Moreover, the returns on the FIAs are tax deferred. IRS does not tax the returns until you take them out from the FIA account.

If Safety is chief on your mind. The guarantees of regulated companies provide comfort. Index interest can provide more than other interest bearing investments; a lot more than Certificates of Deposit under current rates. They enjoy the protection from creditors. Most important, the deferred fixed index annuity offers growth without market risk, and lifelong income after the payment stream starts.

The deferred fixed index annuity is an important tool to guarantee we have a comfortable retirement; especially if we are fortunate to live a long time.

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Friday, February 5th, 2016 Wealth Preservation Comments Off

Market Stability for Retirees

Riding and playing the stock market is a thrill that more people have been getting involved in and, whilst not guaranteed of course, there can be substantial profits to be made from it.  However, there are two different options that are available for investing, the safe way, and the not so safe way. One is where you would not take any risks of getting high returns and no link to the market. The other is where you would run the risk of losing money if the market turned down.

The historically bad market start to this year suggests that conditions could worsen even more.  Even people that had a 401k thought it was safe, and instead seen their value drop recently. One of the many headlines is about the trillions of dollars that have been wiped out of the stock market in the worst start for the Dow in history — since 1897! And worst start for the S&P 500 since the Great Depression began in 1929.

The S&P 500 during the 2000-2002 bear market fell by almost 50%, and by 57% during the 2007-2009 bear market. The net effect of those two declines is that, even with intervening bull markets, the Standard & Poor’s 500’s annualized total return since March 2000 is just 4.1% — well less than half its historical average.  Did you know that over the past three decades, the S&P 500 has produced total returns of about 9% per year on average, but the average investors returns were a paltry 1.9% during that time period?

Bubbles happen again and again. The same basic ingredients are found every time: fueled initially by well-founded economic fundamentals, investors develop a self-fulfilling optimism by herding that leads to an unsustainable accelerating increase in prices. And each time people are surprised that a bubble has happened.  Can it really make more sense to stick with the market as it heads over a cliff?

In light of the decline, the historically bad market start to the year — the Dow, S&P 500 and Nasdaq are each down more than 9 percent — does not bode well for 401k or pensions. Sure, markets can rebound by the end of the first quarter, but the slide means they’re starting from behind.

A great example of how well this works is to look at the worst ten year period in the modern history of the stock market, January 1999 to December 2008.  If you had invested $100,000 in an S&P Index fund in January 1999 your account would have been worth only $62,000 in December 2008. Even during this terrible ten year period, five of the years were up, and five were down.

Fixed index annuities can’t possibly afford to give you 100% of the upside in the up years, but even if the annuity sponsor gave you half of the upside in the up years, and no loss in the down years, your account would have grown to $142,000, much more than twice the value that you would have in an index fund over the same period.

The strength of an index annuity is really all in the protection that investors are afforded. As mentioned above, if things are left and not withdrawn, the initial investment will not decline in its value. Upward movements earn the income, but downward movements do not cause for a drop in value to be seen.

Fixed indexed annuities can offer you both a principal that is guaranteed and a link to the market. But you will not lose money if the market has a downturn.  Your principal will always stay the same, but if the market goes up you will see an increase on your investment, and your gains are always locked in, so you can never lose any of your prior gains due to a market downturn.

How do you know if index annuities are right for you? If you are a conservative investor and are generally concerned with potential downswings in the market, then an index annuity can be a great choice for your investing needs. You can participate in the potential of a strong market run without having to deal with severe loss during a sharp market downturn. In addition, the overall principal of the investment is safely protected so that no loss will occur.

The first and possibly most attractive provision of a fixed-indexed annuity is the no-loss provision. This means that once a premium payment has been made or interest has been credited to the account, the account value will never decrease below that amount. This provides safety against the volatility of the S&P 500.

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Friday, January 29th, 2016 Wealth Management Comments Off

Shaky 2016 Start For Retirees

The economic storm clouds are gathering and it’s looking like the U.S. is in for some tough financial weather.  In recent weeks the financial markets have been in utter turmoil.  It has also been the worst-ever start to a year for U.S. equities, as both the S&P 500 and the blue-chip Dow Jones industrial average have posted their steepest losses for the first eight days trading of a year.  Almost $3.2 trillion has been wiped off the value of stocks around the world since the start of 2016.

The current economic backdrop is: the lowest interest rates in a generation, volatile and uncertain markets for equities & bonds, political gridlock preventing economic solutions, an unstable global banking industry and emerging economies challenging America’s dominance.

Investors shouldn’t try and time the market and that downturns tend to be followed by swings higher, eventually.  Market timing only works if you not only make one good call at the top, but also the second good call at the bottom.  The only sure way to successfully grow your investments is to have an asset allocation plan that you stick to and continue to contribute over a long period.

Retirement is a time to keep what you’ve got rather than speculate in hopes of making more. If you have your retirement money in a risky place like the stock market and there is a meltdown, you’ll probably suffer a significant loss with no way and no time to make it up.  In fact, if you lose your retirement money because you gambled in the market and lost, there may not be a second chance…

When the economy goes into a tailspin and investments sink like a rock thrown into a lake, wall street and its army of brokers go into battle mode because their commissions hang in the balance.  Stocks, bonds, mutual funds, and diversified portfolios are now recognized as risky and not for the faint of heart. Many retired investors have reviewed their risk tolerance and found their losses have greatly exceeded what they thought – and were told by their broker and Wall Street – were possible.

Standing tall and proud above the fray is the fixed indexed annuity that has experienced no loss and has retained the potential for gain should the markets recover.  Fixed Indexed Annuities offer those approaching retirement, in retirement, and the risk averse a safe harbor to protect their hard-earned retirement money from market and interest rate uncertainties.

Index-linked annuities offers the opportunity for a higher rate because the interest rate they pay depends on the movement or growth of a stock/bond market index like the S&P 500 … but if the market nosedives you don’t because the worse you can do is the minimum return guaranteed by the insurance company.

Lastly there is the income annuity which guarantees you a period certain or lifetime income in exchange for depositing with the insurance company all or some of your retirement money. The income annuity can give you what employers once guaranteed their retiring employees: a lifetime income you can’t outlive — even if you live to be 125.

Insurance companies which are among the world’s largest, strongest and oldest financial institutions are willing to guarantee you a lifetime income you can’t outlive if you’ll deposit with them some of your retirement money.  They will take the risk associated with the markets, stocks losing value, real estate crashing and other unforeseeable developments that can erase your retirement money. You’ll still be left with taxes, inflation, health issues and non-investment risks but you’ll not be able to outlive your money.

The smart saver that rejected the “wisdom of Wall Street” and chose the fixed indexed annuity is without loss – money or sleep – and without cracks in their retirement nest egg.

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Thursday, January 14th, 2016 Wealth Management, Wealth Preservation Comments Off

Roadblocks to a Safe, Secure Retirement

As an investor moves into retirement, their financial priorities will change. Their attention will turn to generating income from investments. The attitude towards risk for the investor should also change, and in general they will begin to move towards lower risk investments. Preservation of their principal is also important to retirees so that they have enough savings to last throughout their lifetime and perhaps their spouse’s lifetime.

There are Roadblocks to accomplishing a safe, secure retirement. You have to squint to see the interest rates paid by bankers; stocks up big one day and down big the next; dividends from blue chip stocks are not guaranteed and neither is their favorable tax treatment; safe bonds pay tiny returns; investment real estate is for the brave; gold, silver and other precious metals are a crap shoot; get rich quick schemes are crazy if you want your money back.

In the past pension plans were differentiated from other types of retirement plans in that employers were committed to providing a certain monetary level of benefits to employees upon retirement.  Gone are the days when you could basically rely on a combination of your employee pension and your Social Security benefits.  The fact that Employers have shifted from traditional defined-benefit plans to defined-contribution plans means workers will have to take responsibility for planning for retirement.

Retirees and working adults are increasingly responsible for making and understanding sophisticated financial decisions involving investments, diversification, retirement and money management.  401(k) money is generally invested in mutual funds and mutual funds are composed of stocks and bonds. Since stock prices have been violently, and predictably, waxing and waning in recent months, so has the value of your 401(k) account.

Not to worry, you say, because this is your retirement money and there is lots of time to recover from market downturns. True, unless you’re in the red zone right before or after retirement.  We judge our retirement money by how big it is (how much) rather than how long it is (years it will last). Rather than focusing on “how big” let’s think about “how long”.

The likelihood of the average American outliving their retirement savings is become more and more of a possibility.  The greatest fear of most retirees is running out of money before they draw a last breath. This is called longevity risk and is probably the most overlooked aspect of retirement.

What can you do to protect your 401(k) assets if you’re scared stiff that a major market downturn will ruin your retirement?  The best way to sleep well at night is to know that your “must have” expenses are covered.  If you’re interested in a guaranteed income for life that you cannot outlive regardless of what happens to the stock market, interest rates or real estate prices, the insurance industry has come to your rescue.

Retirement annuities are exactly the investment vehicle that is required to help retirees make this transition in financial priorities. Retirement annuities offer them an income stream for life. One of the most credible options of retirement income planning is to give consideration to various annuity plans that are very useful for this particular financial purpose.

Here are some basic tips and information that would give better insight over the choice of right kind of annuity that would comply with best possible retirement income planning -

  • Whatever be the type of annuities, they are akin to the pension plans except the fact that annuities are more receptive to inflation.
  • One of the striking benefits of annuities are that they provide an inflow of funds for entire lifespan. The amount put in during the accumulating stage will be rendered back regularly along with the interest that has been accrued over all through the years. It is for certain that annuities will pay funds to the policy holder as long he/she is alive, even if it is for 120 years.
  • Annuities are the most preferable option for retirement income planning since it also comes along with death benefits. In case of the untimely death of the annuity holder, the accrued assets, and its consequent benefits, will get transferred to the nominated beneficiary. Hence annuities provide not just income to the annuitant during his life time but also provide death benefits to policy’s beneficiaries.
  • When it comes to payouts, annuities offer more than one choice. Its various payment choices are – payment for rest of annuitant’s life; lump sum payment of funds; periodic delivery of funds (monthly, quarterly or yearly); and systematic allocation of funds.
  • One way the annuities are little less lucrative than other retirement income planning programs is the charging of surrender charges. Surrender charges refer to the mandatory rule of insurance company that demands money to be kept in annuity plan for at least 7 initial years. But this feature is not as negative as it appears. Retaining of investment for 7 consecutive years is not a major issue for a retirement plan.
  • There are guaranteed options that don’t involve out guessing the market. The first is an income annuity purchased from an insurance company that guarantees you a set income for life – including your spouse’s life if you choose and also inflation protection can be included.

All these suggested points clearly indicate the annuities are the best option to be taken up as income option after retirement.  If you want retirement peace of mind and no financial worries, a guaranteed lifetime income deserves a look.

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Friday, December 18th, 2015 Wealth Management Comments Off

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